Apple's e-commerce strategy and business success

e-Commerce

This project is about e-commerce and how it has helped Apple in its business objectives. The purpose is of the paper is to illustrate the wide-ranging ways in which e-commerce can provide opportunity to corporate entities. Apple makes a good case study because it has successfully emerged as an e-commerce powerhouse in recent years. It was able to gain market entry into music sales using e-commerce and the company has now become one of the world's largest online retailers as well.

The project will cover Apple's successes in e-commerce, both as a player in the entertainment industry and as a player in the personal electronics and software industries. The scope will include some brief analysis of Apple's financials, as the numbers will support the discussion of Apple's e-commerce strategy. There are articles both in the business press and in academic journals that outline a lot of what Apple has done to earn its success over the past decade or so. The first section of the report will be a literature review.

Literature Review

E-commerce is defined as doing business electronically. Typically, this is shorthand for using the Internet, although other intermediating media such as SMS could also be used. There are several different models for e-commerce, including virtual merchants, bricks and clicks, catalog merchants and manufacturer direct (Laudon & Traver, 2007). The latter category consists of firms that are "single or multi-channel manufacturers who sell directly online to consumers without intervention of retailers" (Ibid). While Apple is not strictly a manufacturer -- it designs and markets its devices while offshoring the actual manufacturing -- the definition still applies. This description of the type of business model that Apple has adopted with respect to e-commerce is critical to understanding how Apple's e-commerce strategy evolved and how it enhanced Apple's value.

One of the critical drivers of e-commerce is the use of intelligent agents, which is technology that helps guide the consumer decision-making process, typically based on the consumer's own inputs (search queries, etc.). Amazon is a leader in intelligent agency, but Apple also makes use of this technology. Ito, Ochi and Shintai (2002) discuss both artificial intelligence and agent-mediated electronic commerce in this context. The authors outline how such technology can be put to work. Their study focused on group buying. While this is not a large part of Apple's e-commerce strategy, Apple does make some institutional and business sales. Further, there are lessons to be learned from this report because it highlights some of the methodologies where e-commerce has competitive advantage over conventional, offline business. E-commerce software has unique capabilities for being able to understand consumers, and therefore deliver to the consumers the products and services most needed. The interface of such software with the consumer can be as simple as a recommendation, say for a new song on iTunes, based on previous downloads.

Another article relevant to the subject of e-commerce as it pertains to Apple is Zhu and Kramer (2002). In this article, the authors identified four key metrics that measure the e-commerce capability of Internet-enhanced organizations. These metrics are based in four dimensions: information, transaction, customization and supplier connection. The authors found that e-commerce capability was strongly associated with things like inventory turnover and some other internal metrics. Being able to identify e-commerce capability and understand how it affects organizations is critical to understanding how a company like Apple can benefit from building e-commerce capability. Indeed, Apple appears to have benefitted significantly from managing its inventory levels and being able to offer a degree of certainty with regards to shipping times (via its relationship with FedEx). The authors also found that cost of goods sold would increase for manufacturing companies but decrease for technology companies -- it would be interesting to see where Apple falls in that respect, being a bit of both.

Webb (2002) discusses the management of different channels in the age of electronic commerce. The author here highlights the issue of resource complementarity for allowing e-commerce to enhance value. Not every company, the author argues, will be able to yield positive results from investment in e-commerce. This is an interesting issue for Apple because the company has typically used a number of different distribution methods. One issue that comes up when doing something like this is the issue of cannibalization, where Apple might enjoy e-commerce success only if selling via that channel does not steal sales from existing channels. Apple sells via third-party retailers and thorough its own stores, so there is considerable risk that e-commerce success is not complementary, at least with respect to the company's hardware.

The literature review items discuss how a company like Apple can succeed -- by developing e-commerce strategies that are complementary to the existing business and that are well-executed. Apple took this one step further and entered a new business that was not being served at the time by existing e-commerce entities, at least ones that were legal.

Recommendations and Conclusions

Apple has done an exceptional job of becoming an e-commerce powerhouse. When the company launched its major e-commerce initiatives, the current e-commerce business models and major companies were already established. While Apple did not innovate a new business model, it did deal well with the established players. Apple was able to enter a new business, and build its hardware business into one of the largest e-commerce businesses in the world in just a few years. The problem for Apple is to figure out what to do from here. My recommendation is actually to do nothing. Apple is doing well, and there does not appear to be any reason to change strategy mid-stream. The major impetus for Apple to change its e-commerce strategy would be if its strategy in general changed.

If anything, the one area where there could be some improvement is in servicing overseas customers. Apple's website sometimes either cannot service an overseas customer or it cannot do so adequately. There are major gaps internationally with respect to where Apple sells and what it sells, so these gaps can be addressed with stronger e-commerce technology, especially for those markets that are not earmarked for an Apple store.

In conclusion, e-commerce has been highly successful for Apple. The company has utilized two models, depending on the product in question, and its execution of these models has by and large been successful. Apple entered the music industry and became a major player very quickly through its e-commerce strategy, and Apple has been able to be one of the world's largest clicks-and-mortar players by developing a strong e-commerce strategy for its consumer electronics products. The strategy also succeeds because Apple has been able to progress beyond simply selling computers to a holistic approach that features customer relationship management software and the ability to meet the needs of customers for whom visiting a bricks-and-mortar store would be difficult. By using e-commerce to reach new markets and new consumers, Apple has successfully used e-commerce to enhance its existing business, adding billions of dollars in revenue while cannibalizing little.

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